Case Law Details
Dell International Services India Pvt. Ltd. Vs DCIT (ITAT Bangalore)
n the case of Dell International Services India Pvt. Ltd., the Bangalore ITAT held that GST, sales tax, and service tax refunds cannot be taxed where the assessee consistently follows the exclusive method of accounting and does not route such taxes through the Profit & Loss Account. The Tribunal clarified that since these taxes were neither claimed as expenditure nor debited to P&L, their refund cannot be treated as income—rejecting the CIT(A)’s view of taxability under Section 41(1) or Section 28(i).
Further, the ITAT deleted the addition of ₹14.37 crore relating to margin on stock converted into capital assets, holding that the amount was already offered to tax in the return, and a second addition under Section 143(1) would amount to double taxation.
On interest under Sections 234B and 234C, the Tribunal held it to be consequential, directing recomputation.
Accordingly, the appeals were allowed (partly/statistical purposes), granting substantive relief on key additions.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
These appeals at the instance of the assessee are directed against the separate orders of the ld.Addl/JCIT(A)-2, Mumbai both dated 11.11.2025 vide DIN & Order No: ITBA/APL/S/250/2025-26/1082483582(1) for the AY 2023-24 & vide DIN & Order No. ITBA/APL/S/250/2025-26/1082483853(1) for the AY 2024-25 passed u/s. 250 of the Income Tax Act, 1961 (in short “theAct”). Since the issue in both appeals is common, these are clubbed together, heard together and disposed of by this common order for the sake of convenience.
2.The assessee has raised the following grounds of appeal in ITA No.2889/Bang/2025 for the AY 2023-24: –
1. The impugned order passed by the Commissioner of Income Tax Appeals (“CIT(A)”) are based on incorrect appreciation of facts of the case and incorrect interpretation of law and therefore, bad in law and are liable to be quashed.
Without prejudice to the foregoing:
2 : 0 Re.: Addition of Rs. 345.28.51,548/- towards refund of Goods & Service Tax, Sales Tax and Service Tax not credited to the Profit & Loss A/c:
2 : 1 The CIT(A) has erred in upholding the action of the CPC Bangalore / Assessing Officer in making an addition of Rs. 345,28,51,548/- towards refund of Goods & Service Tax, Sales Tax and Service Tax not credited to the Profit & Loss A/c as a revenue receipt.
2 2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, the addition made by the CPC-Bangalore / Assessing Officer is misconceived, incorrect, erroneous and not in accordance with the law and the CIT(A) ought to have held as such.
The CIT(A) erred in holding that any benefit arising from the remission or cessation of a liability earlier incurred in the course of business would be taxable under Section 41(1) of the Income-tax Act, 1961 (“the Act”).
The CIT(A) erred in holding that refund of Goods & Service Tax, Sales Tax and Service Tax would alternatively be liable to be taxed under Section 28(i) of the Act as income profits and gains of any business or profession.
2 : 3 The Appellant submits that the CIT(A) failed to appreciate the fact that the amount represents refund of input credit not previously claimed as deduction.
2 : 4 The Appellant submits that the CPC-Bangalore / Assessing Officer be directed to delete the addition so made and to re-compute its total income and tax thereon accordingly.
3 : 0 Re.: Double addition of Rs. 14,37.29,950/- towards margin on finished Roods converted into capital assets:
3 : 1 The CIT(A) has erred in upholding the action of the CPC Bangalore / Assessing Officer in making an addition of Rs. 14,3 7,29,950/- towards margin on finished goods converted to capital asset.
3 : 2 The Appellant submits that considering the facts and circumstances of its case, the CPC-Bangalore / Assessing Officer failed to appreciate the fact that the said amount of Rs. 14,37,29,950/- has been already offered to tax in the return of income filed by it for the captioned assessment year and the action of the CPC-Bangalore/ Assessing Officer in this regard has ltd to double taxation of the said amount.
That the CIT(A) erred in holding that the Appellant has not substantiated that the amount of Rs. 14,37,29,950/- has been credited/debited to the profit and loss account and correspondingly included in the computation on taxable income.
3 : 3 The Appellant submits that the CPC-Bangalore / Assessing Officer be directed to delete the addition so made and to re-compute its total income and tax thereon.
4 : 0 Re.: Excessive levy of interest LIIS. 23413 of the Income-tax Act, 1961:
4 : 1 The CPC —Bangalore/Assessing Officer has erred in levying excessive interest of Rs. 29,23,89,792/-
u/s. 234B of the Income-tax Act, 1961 on the Appellant.
4 : 2 The Appellant Submits that considering the facts and circumstances of the case and the law prevailing on the subject, the stand taken by the CPC – Bangalore / Assessing Officer in this regard is misconceived, incorrect, erroneous and illegal and the CIT(A) ought to have held as such.
4 : 3 The Appellant submits that the CPC— Bangalore/ Assessing Officer be directed to delete the excess interest so levied on it and to re-compute its tax liability accordingly.
5 : 0 Re.: Excessive levy of interest u/s. 234C of the Income-tax Act, 1961:
5 : 1 The CPC—Bangalore / Assessing Officer has erred in levying excessive interest to the extent of Rs. 9,77A7,256/- u/s. 234C of the Income-tax Act, 1961.
5.2 The Appellant submits that considering the facts and circumstances of the case and the law prevailing on the subject no further interest is leviable u/s. 234C over and above the interest computed and paid by the Appellant at the time of filing its return of income and hence the action of the CPC-Bangalore / Assessing Officer in this regard is incorrect, erroneous and not in accordance with the law and the CIT(A) ought to have held as such.
3. We first take up the appeal for the AY 2023-24 for adjudication, the relevant findings of which shall apply mutatis mutandis to ITA No. 2890/Bang/2025 for AY 2024-25.
4. Brief facts of the case are that the assessee company is engaged in manufacturing and trading computer systems, servers and accessories and provides support and maintenance services. The assessee company filed its return of income for the assessment year 2023-24 on 28.11.2023 under the normal provisions of the Act by declaring a total income of Rs.2006,57,49,679/- and claimed refund of Rs.3,42,93,210/- along with interest u/s 244A thereon. Thereafter, the CPC processed the said return and issued notice u/s 143(1)(a) of the Act dated 5.12.2023 proposing the following adjustments to the total income of the assessee company-
- Addition for Goods & Service tax (GST), sales tax and service tax refunds not credited to the statement of profit & loss amounting to Rs.345,28,51,548/-.
- Addition of margin on finished goods converted to capital assets amounting to Rs.14,37,29,950/-.
- Addition of bad debts recovered amounting to Rs.31,13,91,117/-.
4.1 Subsequently, the CPC passed an undated intimation u/s 143(1) of the Act for the AY 2023-24 in which the total income of the assessee company was increased from Rs.2006,57,49,680/- to Rs.2315, 88,80,990/- and granted the short credit of advance tax as well as TDS and also levied interest u/s 234B & 234C of the Act and accordingly raised a demand of Rs.223,40,75,392/-.
5. Aggrieved by the aforesaid intimation passed u/s 143(1) of the Act, the assessee company preferred an appeal before the ld. CIT(A)/ADDL/JCIT(A).
6. With regard to addition on account of the refund of the GST, sales tax and service tax amounting to Rs. 345,28,51,548/-, the ld. Addl/JCIT(A)-2, Mumbai held that the refund of GST, Sales tax or Service tax arises directly out of the assessee’s trading operations. The taxes were initially collected from customers as part of the sales transaction and remitted to the government, when subsequently, a refund is received whether on account of excess payment, rectification of assessment or input credit adjustment, it represents the real benefit or inflow in the course of business. The character of such receipt is, therefore, intrinsically a trading receipt. Merely because the assessee follows an accounting system where taxes are recorded separately and not routed through the profit & loss account, it cannot alter the essential nature of the transaction. Further, the ld. Addl/JCIT(A)-2, Mumbai held that the exclusive method of accounting cannot be used as a device to exclude legitimate business receipts from taxation. The method only determines the manner of presentation in the accounts, and not the scope of taxable income under the Act. Considering the above, the ld. Addl/JCIT(A) held that the assessee had received a clear and tangible benefit representing remission of trading liability and the same is taxable either u/s 41(1) or alternately u/s 28(i) of the Act and accordingly dismissed this ground of appeal.
6.1 Further, with regard to the addition of Rs.14,37,29,950/- on account of margin on finished goods converted into capital assets as reported in clause 16(a) of the tax audit report, the ld. Addl/JCIT(A) held that apart from self-prepared breakup, the assessee had not produced any supporting ledgers, journal vouchers or documentary evidence to substantiate that the said figures in fact have been credited or debited to profit & loss account and correspondingly included in the computation of taxable income. Further, the ld. Addl/JCIT(A) held that the CPC’s adjustment is based on the clear disclosure in clause 16(a) of the Form No.3CD that an amount of Rs.14,37,29,950/- represents margin on conversion of stock into capital assets. The ld. Addl/JCIT(A) was of the opinion that such data-based adjustment is specifically permissible u/s 143(1)(a)(vi) of the Act where information furnished in the audit report is inconsistent with the return of income. Further, the burden of proof that an addition made by the CPC lead to double taxable had also not been discharged by the assessee and accordingly held that the addition of Rs.14,37,29,250/- was justified and accordingly dismissed this ground of appeal also.
6.2 With regard to addition of Rs.31,13,91,117/- on account of bad debts recovered, the ld. Addl/JCIT(A) in order to avoid double taxation, directed the AO to verify from the books of account and tax audit report whether the amount of Rs.31,13,91,117/-representing bad debts recovered has in fact been credited to the P & L account and included in the returned income. If on such verification, the claim is found correct, the AO shall allow appropriate relief and exclude the same from taxable income and accordingly allowed this ground of appeal of the assessee.
6.3 Further, with regard to non-granting of credit of advance tax as well as TDS, the ld. Addl./JCIT(A) directed the AO/CPC to verify the advance tax challans and Form No.26AS and grant the credit after due verification and accordingly allowed this ground of appeal for statistical purposes.
6.4 Lastly, with regard to interest u/s 234B & 234C of the Act, the ld. Addl/JCIT(A) held that the levy of such interest is purely consequential in nature and does not require any specific adjudication. However, the ld. Addl/JCIT(A) directed the AO to recompute the interest u/s 234B & 234C of the Act while giving effect to the order of ld. Addl/JCIT(A) and accordingly, this ground of appeal was also allowed for statistical purposes.
6.5 Thus, the ld. Addl/JCIT(A) partly allowed the appeal of the assessee.
7. Again, aggrieved by the order of ld. Addl/JCIT(A)-2, Mumbai dated 11.11.2025, the assessee has filed the present appeal before this Tribunal. The assessee has also filed voluminous paper book as well as case laws in support of its case.
8. Before us, the ld. A.R. of the assessee Sri T. Suryanarayana Advocate vehemently submitted that for the AY 2023-24 the assessee has filed this appeal mainly for the two issues i.e. (i) for the addition of Rs.345,28,51,548/- towards refund of GST, sales tax and service tax not credited to profit & loss account and (ii) the addition of Rs.14,37,29,950/- towards the margin on finished goods converted into capital assets. With regard to the first addition of Rs.345,28,51,548/-, the ld. A.R. of the assessee vehemently submitted that the ld. Addl/JCIT(A) misdirected himself in holding that the benefit arise from the remission or cessation of a liability earlier incurred in the course of business would be taxable u/s 41(1) of the Act. Further, it is submitted that the ld. Addl/JCIT(A) grossly erred in holding that refund of GST, sales tax and service tax would alternatively be liable to be taxed u/s 28(i) of the Act especially when the GST element was not routed through the profit & loss account by consistently following the exclusion method by the assessee company. Further, with regard to the addition of margin on finished goods converted to capital assets, the ld. Counsel of the assessee vehemently submitted that this margin was disclosed by the tax auditor in clause 16(a) of the Tax audit report and the same was voluntarily offered to tax in the return of income under schedule BP for the AY 2023-24 and accordingly submitted that the disallowance of the same once again will amount to double taxation.
9. The ld. D.R. on the other hand, vehemently submitted that as per the provisions of section 145A of the Act, for the purpose of determining the income chargeable under the profits & gains of business, the valuation of purchase, sale of goods or services and of inventory shall be adjusted to include the amount of any tax, duty, cess or fee actually paid or incurred by the assessee to bring the goods or services to the place of its location and condition as on the date of valuation and accordingly contended that the ld. Authorities below have rightly added the same as revenue profit of the assessee.
10. We have heard the rival submissions and perused the materials available on record. Before us, the assessee has raised mainly two grounds for the AY 2023-24 i.e. first relating to addition of Rs.345,28,51,548/- towards refund of GST, sales tax and service tax not credited to profit & loss account and secondly relating to alleged double addition of Rs.14,37,29,950/- towards margin on finished goods converted into capital assets. Further, for the AY 2024-25, the assessee has raised the sole ground of addition of Rs.274,31,61,059/- towards refund of Goods & service Tax, Sales Tax and Service Tax not credited to profit & loss account. The contention of the ld. A.R. of the assessee is that the assessee is following the exclusive method of accounting GST consistently where the statutory dues i.e. GST, sales tax and service tax etc. are collected from the customer and such collection of statutory dues is treated as statutory liability and shown under liabilities in the balance sheet without charging it to the profit & loss account. Further, the ld. A.R. submitted that this method is being consistently followed by the assessee and it is also an acceptable method of accounting. After considering the submissions made by the ld. A.R. of the assessee as well as the material placed on record, we are of the considered opinion that if the GST element is not routed through the profit & loss account by consistently following the exclusion method, then the question of taxing the GST refunds does not arise in the case of the assessee. Thus, when the payment of GST is not claimed as expenditure by debiting the same to the profit & loss account, then in our opinion refund of the GST cannot be liable to be taxed for alleged non crediting the same to profit & loss account. We also take note of the fact that the assessee had categorically submitted before the ld. Addl/JCIT(A) that these refunds do not represent taxable income since the assessee consistently followed the exclusive method of accounting for GST, wherein such indirect taxes paid are neither debited to the profit & loss account nor claimed as deduction. We are of the considered opinion that the ld. Addl/JCIT(A) could not understand the real crux of the issues in the present case. We are also of the considered opinion that the ld. Addl/JCIT(A) also misdirected himself in holding that the benefit arise from the remission or cessation of a liability earlier incurred in the course of business would be taxable u/s 41(1) of the Act or, alternatively be liable to be taxed u/s 28(i) of the Act.
10.1 Undisputedly, in the present case, the assessee is following the exclusion method of accounting for GST consistently where purchases, sales and inventories are recorded at their net value, excluding the tax component. Under this method, the GST paid on inputs is debited to a separate “Input GST” account to be claimed as a credit, while GST collected on sales is credited to an “Output GST” account as a liability. Further, the assessee company has also made the disclosure in note no.9 & 14 of the audited financial statement which are reproduced below-
We are of the considered opinion that following either the exclusive method or inclusive method consistently generally does not change the final taxable profit, provided the necessary adjustments are made. We also do agree with the contentions of the ld. DR that as per the provisions of section 145A of the Act, for the purpose of determining the income chargeable under the profits & gains of business, the valuation of purchase, sale of goods or services and of inventory shall be adjusted to include the amount of any tax, duty, cess or fee actually paid or incurred by the assessee to bring the goods or services to the place of its location and condition as on the date of valuation and for this reason only the Tax Auditor had made the observations 13 & 15 in the tax audit report as reproduced above. On going through the above, we noticed that the auditor had categorically observed that there are no deviations from the method of valuation prescribed u/s 145A of the Act except sales are net of goods and service tax(GST), purchases are valued exclusive of GST credits and effect of the above deviation, computed in the manner prescribed in the guidance note on tax audit u/s 44AB of the Act issued by the ICAI would not have any impact on the profit before taxation. Further, the auditor had categorically stated that the GST and input tax credits availed by the assessee on goods and service paid or incurred on purchase of raw materials including components are not included in the valuation of purchases and inventory, but carry forward under balance with Government authority under other current assets. Thus, we are of the considered opinion that once GST element were not routed through the profit & loss account, then question of taxability of the refunds of GST, Sales Tax and service tax does not arise in the case of the assessee company. After perusal of the materials on record, we also find that the ld. Addl/JCIT(A) had not disproved the claim of the assessee that it had neither debited the expenditure pertaining to GST/Service tax/sales tax to the profit & loss account nor credited the corresponding refund amount as per the accounting policy followed by the assessee company consistently over the number of years.
10.2 We noticed that the ld. Addl/JCIT(A) was himself confused whether the refund of GST, Sales Tax and service tax is taxable u/s 41(1) of the Act or section 28(1) of the Act without proper understanding the crux of the issue in hand. Thus, where the assessee is following exclusive method of accounting for GST consistently and has not debited the GST/sales tax/service tax to profit & loss account then the question of taxing the refunds of the same does not arise in the case of the assessee and accordingly, we allow this ground of appeal of the assessee for both these AYs in appeal before us.
11. Now the ground No.3 as raised by the assessee company is with regard to the alleged double addition of Rs.14,37,29,950/-towards margin on finished goods converted into capital assets. Before us, the ld. Counsel for the assessee contended that the CPC had made an addition of Rs.14,37,29,950/- only based on the disclosure in clause 16(a) of the Tax Audit Report (TAR) whereas the assessee company had voluntarily offered the same to tax in its return of income under schedule BP for AY 2023-24. We take note of the fact that the assessee had accounted an amount of Rs.14,37,29,950/- towards margin of the stock converted into fixed assets. On conversion of stock into fixed asset, the aforesaid amount of Rs.14,37,29,950/- is transferred to the fixed asset schedule as addition made during the year under block (iii) – Plant & Machinery depreciated @ 40%. The assessee company reported the aforesaid margin under clause 16(a) of the TAR and had duly offered it to tax in the return of income under sl.no.23 of Schedule BP of ROI filed for AY 2023-24 amounting to Rs.81,48,41,305/-, the breakup of which is given below:
11.1 Further, we also observed that the auditor in column no.16(a)(i) had also reported margin on finished goods converted to capital asset amounting to Rs.14,37,29,950/- as amount not credited to profit & loss account as below:
11.2 Further, we also take a note of the fact that the assessee company in its statement of Computation of tax payable had taken into consideration the margin of stock converted into fixed asset while computing the income from business as reproduced below:
11.3 Thus, in view of the above, we have no hesitation to hold that the amount of margin on finished goods converted into capital assets was duly disclosed by the assessee in its return of income voluntarily and thus, as rightly contended by the Counsel of the assessee adding the same once again u/s 143(1) of the Act will amount to double taxation and accordingly, we also allow this ground of appeal of the assessee company.
12. Lastly, with regard to the grounds related to excessive levy of interest u/s 234B & 234C of the Act, we are of the considered opinion that the levy of interest u/s 234B & 234C of the Act are consequential in nature and accordingly the AO is directed to recompute the interest chargeable u/s 234B of the Act while passing the OGE and also recompute the interest u/s 234C of the Act by taking into consideration the returned income filed by the assessee and accordingly, this ground of appeal is also allowed for statistical purposes.
13. In the result, the appeal filed by the assessee in ITA No.2889/Bang/2025 is allowed for statistical purposes.
ITA No.2890/Bang/2025:
14. The assessee has raised the following grounds of appeal in ITA No.2889/Bang/2025 for the AY 2024-25: –
1 : 0 Re.: Validity of the adjustments made to the returned income in spite of the clarification being provided in response to Intimation in terms of first proviso to section 143(1)(a) of the Income-tax Act 1961:
1 : 1 The Centralized Processing Cente’r (‘CPC-Bangalore’) / Assessing Officer has erred in making an adjustment to the returned income of the Appellant in spite of the clarification being provided to the variance proposed in amounts reported in the Form No. 3CD and Form No. ITR-6 in terms of first proviso to section 143(1)(a) of the Income-tax Act, 1961.
1: 2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, the adjustment made by the CPC-Bangalore / Assessing Officer is misconceived, incorrect, erroneous and not in accordance with the law and the Commissioner of Income-tax (Appeals) (‘CIT(A)’) ought to have held as such.
1 : 3 The Appellant submits that the CPC-Bangalore / Assessing Officer be directed to delete the adjustments so made and to re-compute its total income and tax thereon accordingly.
Without prejudice to the foregoing:
2 : 0 Re.: Addition of Rs. 274,31,61,059/- towards refund of Goods & Service Tax, Sales Tax and Service Tax not credited to the Profit & Loss A/c
2 :1 The CIT(A) has erred in upholding the action of the CPC-Bangalore / Assessing Officer in making an addition of Rs. 274,31,61,059/- toward refund of Goods & Service Tax, Sales Tax and Service Tax not credited to the Profit & Loss A/c as a revenue receipt.
2 : 2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, the addition made by the CPC-Bangalore I Assessing Officer is
15. In this appeal, the assessee has raised the grounds related to the addition of Rs.274,31,61,059/- towards refund of GST, Sales tax and service tax not credited to profit & loss account as well as the excessive levy of interest u/s 234B & 234C of the Act. Since these grounds are already adjudicated in ITA No.2889/Bang/2025, the findings of the same will mutatis mutandis apply in the present appeal also and accordingly, this appeal of the assessee is also allowed for statistical purposes.
16. In the result, both the appeals of the assessee are allowed for statistical purposes.
Order pronounced in the open court on 20th Apr, 2026
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